Petrol prices may soar as Saddam halts oil exports

Petrol prices could soar by up to 25p a gallon after Saddam Hussein turned off Iraq's oil exports yesterday.

The Iraqi dictator said the move was a response to Israel's invasion of Palestinian territories.

He said exports would be halted for 30 days unless Israel withdrew before then. If there was no withdrawal within a month, Baghdad would consider its next move.

Crude oil prices jumped immediately. Some analysts said Saddam's tactic could add 5p a litre to unleaded in coming weeks.

It could drive UK fuel prices through the psychological barrier of 80p a litre (£3.63 a gallon) which experts say is the trip-wire for triggering a new round of fuel protests. The move could not have come at a worse time for the Government as Chancellor Gordon Brown prepares for next Wednesday's Budget.

Oil companies said it was too soon to speculate on the effect of Iraq's actions on forecourt prices.

A BP spokesman said: 'We are constantly monitoring the situation. Sustained changes to the international price are what is reflected in the price at the pump.' Shell, Esso and Texaco all said they did not speculate on prices.

The move is seen as Saddam's revenge for threats to him by Tony Blair and George Bush and the prospect of armed conflict.

Mr Blair hinted strongly at the weekend that he would support U.S. military attacks to remove Saddam's 'detestable' regime.

The last time Arab oil was used as a political weapon was in 1973, when reduced exports caused a global energy crisis.

Since then, the world's wealthiest nations have created the International Energy Agency - which can tap into four billion barrels of strategic reserves - to provide a cushion against any similar disruption.

As a result of sanctions imposed after the Gulf War, Iraq is allowed to sell oil only to buy food, medicine and other humanitarian supplies, and to pay war reparations.

It currently exports some two million barrels a day, four per cent of the international oil trade.

The price of Brent crude oil rose from $26.55 (£18.70) to $27.43 (£19.32) in the minutes after the announcement. It later cooled, but the London market closed at $27.02 (£19).

In New York, crude jumped to $27.20 before easing to $26.88 a barrel, up 67 cents from Friday.

Iranian supreme leader Ayatollah Ali Khamenei has also called on Islamic countries to stop supplying oil for a month to nations with close relations with Israel.

Libya said yesterday it supported the call.

Saddam, introduced as 'president, leader and holy warrior', made his announcement in a TV speech in which he attacked 'the oppressive Zionist and American enemy'.

Amid rising Middle East tension, which has seen oil prices increasing steadily since February, his tactic is calculated to discomfort Western economies, exploit the violence between Israelis and Palestinians and rally wider Arab support behind his own increasingly precarious position.

A Foreign Office spokesman said: ' One again, Saddam Hussein is playing politics with people's suffering - exploiting the suffering of the Palestinians for his own political purposes and ignoring the suffering of the Iraqis under his oppression.'

Dr Leo Drollas, deputy executive director of the London-based Centre for Global Energy Studies, said: 'It's a clever move by Saddam Hussein to exploit the international situation and gain some political capital.

'Motorists and the Western economies will be the losers.

'This sort of uncertainty could add up to $2 or $3 to a barrel of oil, putting it over the $30 barrier. The effect could be a rise of around 4p on a litre of fuel - perhaps a penny more.

'That puts it very close to the psychologically significant 80p a litre level which has become a trip-wire for protests in the UK.'

Dr Drollas added: 'The situation could be exacerbated if the Chancellor increases VAT from 17.5 per cent to 20 per cent.'

Roger King of the Road Haulage Association said: 'The Chancellor must be very careful. If Middle East problems cause fuel to rise, then we must grin and bear it. But motorists and industry will not accept the Chancellor adding to such agony.'

Kamal Sharma, of Commerzbank, said: 'Really this is a political development rather than a surge in economic demand'. But he said problems could escalate if other countries copied Iraq.

Foreign Office minister Ben Bradshaw played down the news. He said: 'I'm not too worried about the political gesture by Saddam Hussein.

'The main victims, of course, will be the long-suffering Iraqi people. They need the money for food and medicine. All that Saddam's gesture will ensure is that more Iraqis suffer and more starve to death.'